8/06/2011 @ 6:44AM1,950 views

Why S&P Downgrade Makes No Sense To Me

Okay. I understand that our finances are a mess and our political system is broken. We just missed a good chance to improve things significantly, and we chose, instead, to improve things marginally. Several times, our leaders snatched defeat from victory. Neither side could say yes. Yet, they did the minimum and avoided default.

The United States of America pays its debts. It may not pursue sound fiscal policies. It may not be a paragon of fiscal virtue. But it will redeem its bonds. Its finances may be in tatters, but its credit is not in doubt. It might be, theoretically, if it didn’t have its own currency and its own central bank. But it does have them, and we are the United States of America.

Isn’t a credit agency suppose to opine on the probability of a debtor paying its debts? What difference does it make that it looks silly getting in a position to do so? What difference does it make if the central bank is called upon, or if monetization of its debt leads to inflation? Not that it will. A credit agency doesn’t grade fiscal rectitude. It doesn’t grade inflation probabilities. It’s supposed to grade the probability of the repayment of its debts.

Downgrading the United States of America doesn’t make up for top ratings for mortgage-backed securities filled with toxic subprime mortgages. Two wrongs don’t make a right. Enough damage has already been done. Looks to me like Standard & Poor’s is well named.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

Refinancing means taking out a new mortgage with a lower interest rate to pay off your existing mortgage, search online for “123 Refinance” I got 2.831% rate on refinance! you should know your rate before you find a company. Learn the secrets and tips about refinance

Btw Mr. Ronald Shelp.. S&P’s decisions to lower a country’s credit rating, especially when the one in question is one of the top world economies, aren’t taken with the simplicity of a mouse click or in the blink of an eye.. I tend to think there’s people doing their job there, in comparison to some here.

A credit rating reflects not just the ability to repay but the willingness to repay. Many Americans and some of their elected representatives would have been pleased to see the US default. They certainly would not agree to a national sales tax to restore the country’s fiscal health.

S&P was slow pulling the downgrade trigger. Moody’s and Fitch are even worse. What are they waiting for?

I would have downgraded the bonds as far back as 2001 and no later than 2003. Who cuts taxes while waging war abroad? Not even Kaiser Wilhelm was that stupid.

You don’t get it, Brian? You’re so out of ideas that you call S&P “well named”? :) It amazes me how this publication even allows people with such simplified thought patterns to even enter its office buildings, but then again that says a lot about Forbes.

BRIAN: You are the United States of America, the world’s highest debtor! Who cares that you pay back your creditors 1000 times slower than you continue to borrow? Does that make sense to you yet? No? Ok. What S&P did wasn’t meant to piss you off or confuse you, but to tell world investors that you are no longer the prettiest flower in the garden when it comes to doing business, and that those investors may be better suited for that ELSEWHERE. That, do you get? No? That’s probably because, like many Americans I’m sure, you only care to look at what it means to you, as a country. Fcuk the world. And we all know you weren’t expecting that.

Oh and, Brian, if you still don’t get it, the rating downgrade comes as a result of your unwillingness to cut budget spending.. Mind to check what spending takes roughly 50% of US’s budget? Do you even care to ask your government that question? :)

the US very nearly defaulted on Treasury bond interest payments…S&P believes that the Congress is more interested in political jesturing than it is in the well being of the country. Actually, our fiscal policy and debt level should have brought on a downgrade some time back. When S&P rates a company or municipality the said entity does not have to have defaulted on any debt at the point it is rated. AA+ does not suggest that the issuer WILL default on debt, rather it is juet not “risk free” from such a difault.